NETHERLANDS - The Dutch pensions regulator (DNB) has failed to clarify why it ordered a local glass manufacturer's pension fund to divest its 13% gold allocation, the Rotterdam court has ruled.

The DNB now has four weeks to address the omission, at which point the court will reach its final verdict in the case, brought by the €300m pension fund.

The DNB had turned down the appeal of the Pensioenfonds Vereenigde Glasfabrieken against the regulator's initial decision in February, when it argued that Dutch pension funds, on average, had invested only 2.7% in mixed commodity portfolios.

It also pointed out that gold represented just 3% in the Goldman Sachs Commodities index and that a commodities allocation in line with the index would result in a gold allocation of no more than 0.5%.

"A decrease of the gold markets could have a disastrous effect on the scheme's assets," the DNB had said, suggesting that the holding was at odds with the 'prudent person rule' of the Pensions Act.

But the pension fudn disagreed with the DNB's assessment of its concentration risk. It argued that it had an adequate gold-monitoring policy in place, and that the commodity was a sufficiently liquid asset.

Earlier this week, the Rotterdam court said the DNB's decision in the matter had simply referred to the fact that no other pension funds had similar gold allocations, and that the Pensioenfonds Vereenigde Glasfabrieken's portfolio did not match the GSCI. It concluded that the regulator's explanation had been insufficient.

Rob Daamen, a board member at the scheme, told IPE that it had decreased its gold allocation to 3% and re-invested in AAA government bonds of Germany, Switzerland and Norway. Government bonds now represent all the scheme's remaining assets, he added.

Previously, Daamen said the scheme might consider a claim for compensation if the DNB's decision was determined to have caused any losses.

In October 2009, the pension fund said it had doubled its gold allocation to more than 13% - at the expense of its equity holdings - on the assumption that the market's rise was unsustainable and that a considerable downward correction was likely to follow.

Since the glass scheme purchased the gold, the price of the precious metal has almost tripled.